CSFB Makes the First CMBS Deal for the Current Year

After taking a year-long hiatus to retool its commercial mortgage-backed securities business, Credit Suisse First Boston has sold $1.2 billion in CMBS at better yield spreads than expected.

One tranche for $673 million consisted of a sale of a 9.9-year triple-A-rated class and priced at 137 basis points over Treasurys with comparable maturities. "The price was pretty aggressive," said Michael Hoeh, head MBS portfolio manager at Dreyfus Corp.

Other classes of the deal included a $199 million five-year triple-A-rated class that priced at a spread of 111 over; an A-class that sold at 190 basis points over; a triple-B-rated class that was rated 255 basis points over; and a triple-B-minus tranche that was rated 355 over.

Overall, the CMBS market "has been a bit of a bastard child of the spread markets over the last couple of months," said Hoeh. He has said that the market is well placed for next year, and predicted wide spreads, with a limited amount of supply. "There are some real buyers searching the market," he said.

Freddie Mac Prepayments Decline

There has been a strong performance by discounts in the mortgage-backed securities market. "Discounts have been the strongest performers over the last couple of months, especially in the 15 year," said David Montano, a mortgage researcher at CSFB. "I think it's gone a little too far."

For the fourth month in a row, Freddie Mac prepayments have declined across the board. Seasoned discounts have declined sharply, outpacing the normal seasonal slowdown by almost 10% for the month of October, said Warren Xia, at Banc of America Securities.

Speeds for the 30-year 6.5% pools originated in 1993 and 1996 have declined by 14% to 8.9% constant prepayment rate and 9.4% CPR, respectively. However, the 1993 30-year 6.0% declined by 24% to 7.3% CPR. Seasoned discount speeds are expected to drop another 20% to 25% in the winter months, before picking up in March, said Xia.

As for Ginnie Mae discounts, the to-be-announced pools are trading well below fair value compared to conventionals for much of this year, although a slight rebound has occurred over the past two months, said Art Frank, director of mortgage research at Nomura Securities.

Ginnie Mae 8s have been among the least expensive premium securities, and it is suggested by Frank that holders of GNMA 8's take some profits by switching to conventional 8's.

Elsewhere, Montano doesn't see people "realigning their portfolios in the last two months of the year, but I don't see any big sellers, either." He also noted that volatility is very low, and has dropped about 10 basis points. Mortgages are big callable securities, he says, and will outperform in a fixed-income universe, and are currently make up 34% of that universe. He is calling them, "not a tremendous buy, but fair."

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